To date, e-commerce has been about scale. But when it comes to same-day or even same-hour delivery, the economics become tricky, regardless of how many units a company sells. Loss leaders like Amazon reign supreme as they stamp out competition, but profitability has been an elusive benchmark in the ultra-fast delivery wars.
That's doubly true for grocery delivery, which is a logistical nightmare of temperature zones and handling constraints.
Automation will certainly play a key role in making lightning fast grocery delivery profitable, but one company, CommonSense Robotics, believes another part of the equation is to think small. Today the company announced the first of its Micro-Fulfillment Centers (MFC)s is live and delivering orders in Tel Aviv, Israel.
To understand why MFCs provide a tantalizing solution to rapid fulfillment, it's necessary to look at how automated fulfillment works today. Typically, robotic fulfillment centers are warehouse-scale. The facilities house acres of logistics robots, which work alongside humans picking and placing items from a huge inventory of available stock. Because of the size of these operations, the centers are almost always located outside urban centers.
The problem, and one of the things that makes rapid delivery so challenging, is that urban centers are where most people live. The distance increases delivery times. While automation cuts down on fulfillment costs, once a package leaves the center it usually has a long, expensive trip in store. Amazon spent $21.7 billion on shipping in 2017.
CommonSense's solution is to move grocery fulfillment centers into cities. To do that, it has to make some tradeoffs in terms of space. The new MFC in Tel Aviv is about 6,000 square feet, significantly smaller than an average logistics fulfillment center, which could easily span 120,000 square feet.
The facilities house proprietary robotic systems that maximize space and keep human workers stationary instead of running around to different stations. Though the centers can't match the diversity of offerings that an Amazon fulfillment center provides, they're big enough for most grocery staples.
Given that online share of total grocery spending increased by 22 percent last year and online grocery sales are expected to reach $100 billion by 2025, same-hour delivery could put CommonSense in a strong position to begin taking market share from home grocery delivery leader Amazon.
That's music to the ears of smaller grocery chains, which are scared to death of Amazon and Walmart. CommonSense acts as a third-party fulfiller and contracts with local grocers to delivery goods to customers.
The first MFC will serve customers of Superpharm, an Israeli health & beauty retailer. US-based MFCs are set to launch on the East Coast in 2019. The grocery partners for those launches haven't been named, but there are several large chains that don't have in-house delivery capabilities.
With the grocery landscape rapidly shifting online, its a safe bet some familiar names will be clamoring for a third-party fulfillment solution.